Why board directors should look in the mirror

if an organsiation is performing poorly, directors would do well to take a look at their own leadership, says Board Dynamics CEO Henri Eliot.

In a recent study of 187 board directors from listed and private companies in the United States conducted by consulting firm The Miles Group and Stanford University’s Rock Centre for Corporate Governance, they found that Board evaluations are failing to identify and correct poor performance among individual members.

The study found that only around half (55 per cent) of companies evaluate individual directors, and approximately one-third (36 per cent) believe their company does a very good job of accurately assessing the performance of individual directors.

Directors responding to the study also expressed fairly significant dissatisfaction with boardroom dynamics at their companies, with only 64 per cent strongly believing their board is open to new points of view. Further, only half strongly believe their board leverages the skills of all board members, and 46 per cent strongly believe their board tolerates dissent.

While the vast majority (89 per cent) of respondents said their board has the skills and experience necessary to oversee the company, boards are less effective in taking proactive steps to ensure they maintain a proper mix of skills, with group dynamics coming under fire.

Barely more than half (57 per cent) of directors believe their board is effective in bringing new talent to refresh the board’s capabilities before they become outdated, and only 34 per cent of directors rate their board very positively on planning for director turnover.

The adequacy of leadership evaluation among many boards was also considered in the survey, with 72 per cent of directors believing their leader is effective in inviting the participation of all directors, while 68 per cent believe they are effective in inviting the participation of new members. However, only 60 per cent believe their lead director “asks the right questions” and only 26 per cent believe they are very effective in giving direct, personal, and constructive feedback to fellow directors.

Survey evidence also indicates that lack of trust in the boardroom can be a problem. Only 68 per cent of board members say they have a very high level of trust in their fellow directors, and only 63 per cent believe their board very effectively challenges management. Worryingly, 53 per cent believe their fellow directors do not express their honest opinions in the presence of management.

Writing in the Harvard Business Review, the survey’s authors said: “The evaluation process can be greatly improved by treating the board as a high-performing group of individuals and evaluating its leadership, management, and group dynamics.”

“People do not join boards knowing how to be an effective director. It is important to learn how to become an effective director.”

Key recommendations from the study:

“Give objective feedback to individual directors through the evaluation process.”

“Encourage directors to develop range to their style so that they know how to effectively enter a discussion. Encourage discipline in how directors contribute to board discussions. Stay on topic. Build on points. Do not repeat or rephrase what others have already said. Do not refer excessively to personal experience. Avoid derailing the conversation.”

“Board leadership should play a key role in keeping discussions to the topic, drawing others in who have not contributed, and ensuring that disparate perspectives are vetted.”

Looking at the New Zealand context, very few boards seem to conduct board evaluations and it would seem logical for all boards to review their performance annually as a great way to ensure they are effective as individuals and as a team.